CENTRAL BANK OF KENYA
Speech by
PROF. NJUGUNA NDUNG’U
GOVERNOR
BBRREEAAKKFFAASSTT LLAAUUNNCCHH OOFF TTHHEE FFIINNAACCCCEESSSS 22000099 RREESSUULLTTSS
Norfolk Hotel, Nairobi
10th June, 2009

Governor’s Speech at the Breakfast Launch of the FinAccess 2009 Results, June 10, 2009
Distinguished Guests;
Ladies and Gentlemen;
It gives me great pleasure to be with you today to formally launch the results of
the second national survey on access to financial services in Kenya. Before I make
any remarks, let me take this opportunity to thank the Financial Access
Partnership (FAP) and the FinAccess 2009 Secretariat, which is based at the
Research Department of the Central Bank of Kenya (CBK), and the collaborating
partners; the Financial Sector Deepening (FSD Kenya) and the Kenya National
Bureau of Statistics (KNBS), for making today’s launch possible.
Ladies and Gentlemen, it is important to note from the very onset that over the
last five years Kenya’s financial landscape has considerably changed. The financial
system is now offering a wider range of financial services to more Kenyans with a
wider geographical coverage even going beyond its borders. A number of factors
have been responsible for these developments. These include:
• developments in the monetary sector of the economy and increased
economic activity;
• the financial confidence in the sector;
• policy and regulatory reforms; and
• increased competition and advances in technology.
These developments have set off a dramatic shift away from the traditional branch
banking in the delivery of financial services. The introduction of automatic teller
machines (ATMs) a few years ago moved customers out of the physical branches
but this was preceded by automation system in the banking industry. And now
more than ever, access through point-of-sale (POS) devices, mobile phones and
the internet are poised to accelerate the swing to branchless banking. With
reduced transactions costs, reduced barriers to entry and massive expansion in
terms of geographical outreach, access to finance is bound to increase
tremendously. The challenge to us is to develop regulations that allow low-cost
delivery of financial services without exposing customers to unnecessary risks and
costs.

Governor’s Speech at the Breakfast Launch of the FinAccess 2009 Results, June 10, 2009
Ladies and Gentlemen, the Government recognizes the vital role the financial
system plays in the economy. This recognition is entrenched in the country’s
development blue print – Vision 2030, which aims at transforming the country
into a newly industrialized middle-income country that provides high quality of life
to its citizenry by the year 2030. Indeed under Vision 2030’s economic pillar, the
financial services sector is one of the priority sectors amongst Tourism, Agriculture
and Livestock, Wholesale and Retail Trade, Manufacturing, and Business Process
Outsourcing identified to address Kenya’s economic challenges and grow GDP to
10% by the year 2012. The six priority sectors contribute the most to our GDP
(57%) and create half of formal sector jobs. That is why Vision 2030 envisages a
financial sector that is vibrant and globally competitive in driving high levels of
savings and financing the country’s investment needs. To achieve this goal,
however, three core objectives: enhancing financial stability, improving its
efficiency, and expanding financial access must be addressed. The financial sector
has to collect savings from micro-savers and provide them to the real sector for
productive investments.
Stability is critical because we cannot achieve sustainable development without
an effective and stable financial system that allocates resources and mitigates risks
effectively. Serious threats to our financial system have emerged from the current
global financial crisis. Although the Kenyan financial system was not exposed to
the toxic assets that destabilised the global financial systems, the potential real
sector impacts are still real. However, measures have been put in place to address
the challenges arising from the crisis but also to realign monetary policy to lean
with the wind. Such measures have included; lowering both the Cash Reserve
Ratio (CRR) and Central Bank Rate (CBR) to ease credit restriction and liquidity
in the market, so as to allow cost of credit to come down and lower interest rates;
enhanced surveillance of banks especially on capital adequacy, liquidity risk
management, forex exposures and market risks; and licensing credit reference
bureaus to reduce banks’ exposure to credit risks. No efforts are being spared to
attain financial stability and the Government is pressing ahead with all necessary
reforms designed to strengthen the legal, regulatory and supervisory framework to
ensure stability of the financial system.

Governor’s Speech at the Breakfast Launch of the FinAccess 2009 Results, June 10, 2009
The efficiency of the financial system has an immediate impact on the wider real
economy through the consequent cost of financial services. Of course we are
depressed that the spread has remained around 9.0% for many years. Concerns
have been expressed in the past over the level of interest rates and fees charged
by commercial banks. The Government through the CBK has in this regard
consistently sought to redirect monetary policy easing via the signaling rate, CBR,
the latest review to 8% being in May. Competition is clearly essential to ensuring
that financial institutions have the incentive to invest in improving productivity
and the gains being passed on to their customers. The CBK has acted to
encourage greater transparency in pricing to help ensure the effectiveness of
competition. The Government has also initiated reforms in the commercial justice
system, property rights definition, collateral and land registries and the company
registry to support fair competition through an efficient financial system.
Let me now turn to the subject of expanding access to financial services,
which is our main theme this morning. The importance of financial services for
socio-economic development is not restricted to credit provision alone. Secure
and high quality savings, affordable insurance services and pension schemes are
financial services demanded by all including poor households, who have suffered
the most in terms of accessing these services. Poor households, the majority of
who are still un-banked need to manage their finances efficiently through
accessible and affordable financial services and reduce their vulnerability to
fluctuations in cash flow, save for consumption smoothing, cope with emergencies
like poor health and/or death and accumulate high quality savings for investment
in household and other productive ventures. Considerable scope, therefore, exists
for expanding access to financial services to the un-banked segments and markets
in our economy.
Evidence from a diversity of institutions locally and internationally show that
financial services can be provided to micro and small scale enterprises (MSEs) and
poor households profitably. The critical challenge we face is in developing propoor financial services and innovative systems through which they flow in order to

Governor’s Speech at the Breakfast Launch of the FinAccess 2009 Results, June 10, 2009
open up these markets. The Government is committed to a market-based
approach to financial sector reforms, but it looks to the private sector to deliver the
results on the ground. Recent figures suggest that this policy is already starting to
pay off. Data from the Central Bank of Kenya shows that in the first quarter of this
year alone, a total of 49 new bank branches had been opened in various parts of
the country. I am also happy to note that FinAccess 2009 survey results show the
proportion of those formally banked rising from 18.9% in 2006 to 22.6% in 2009
and the proportion of the financially excluded falling from 38.4% in 2006 to
32.7% in 2009 also corroborates this. The growth in numbers of people being
reached by banking services is therefore encouraging. But also these ratios are
complemented by the trend showing total deposits increasing to surpass Ksh.900
billion in 2009 – this implies more coming to the banks as well as expansion for
the existing customer deposits. Indeed we also see today an increasing number of
institutions offering innovative products and services that are expanding financial
access. In particular, the use of new technologies is crucial to the development of
the financial sector and to dramatically expand financial access. The Government
is pleased to acknowledge and encourage the contributions these institutions are
making to the growth of the sector.
Ladies and Gentlemen, we all know we still have quite some ground to cover in
expanding access to financial services. The survey being launched today,
FinAccess 2009 marks a major contribution towards improving our understanding
of the dynamics of the changing financial landscape in Kenya. The new
information it provides is important in understanding the financial landscape as
the basis for directing interventions where they are most needed. The survey
results show, for example, the important role informal sources of finance continue
to play for a large number of Kenyans who are not reached by the formal financial
system. The FinAccess 2009 survey also shows examples of how homegrown
solutions such as mobile phone money transfers through M-PESA, SACCOs, MFIs
and community based financial organisations are contributing towards expanding
the access frontier. To enhance their effectiveness the Government will continue to
improve the legal, regulatory and supervisory framework to maximize gains and

Governor’s Speech at the Breakfast Launch of the FinAccess 2009 Results, June 10, 2009
minimize risks to the consumer. For example, the enactment of the Microfinance
Act in 2006 provides a great opportunity to broaden and deepen access to
financial services. The MFIs will target low-income earners and rural areas in
Kenya. Towards this end, the Central Bank has developed and published the
proposed Prudential Regulations for Deposit Taking Microfinance Institutions. It is
our hope that implementation of the Microfinance Act will provide the opportunity
for integration for a variety of financial service providers into the formal financial
system. The Government also enacted the SACCO Act 2008 to regulate SACCOs
especially those with front office operations (FOSA). This enables SACCOs to
offer financial services that were previously the preserve of commercial banks and
therefore expand access of their clients to these services more conveniently.
Appropriate regulations such as these strengthen the sector, assuring stability and
laying a platform for further growth.
Another remarkable result from the survey is the high level of cell-phone usage
among Kenyans; nearly 50% of all adults are users but with greater uptake in
urban areas at 72.8% and in Nairobi at 80.4%. New forms of financial access are
now established and can be further developed on the new technology platform.
The M-PESA money transfer service is indeed already playing a pivotal role in
remitting transfers and expanding access to financial services particularly to the
un-banked in rural areas. The Government again, is working to provide a legal,
regulatory and supervisory framework to encourage these innovations in order to
further expand the financial access frontier.
Results of the survey also indicate that in urban areas, for instance, almost half
(47.3%) of the adult population receive financial services from different
combinations of the formal, formal other and informal financial institutions. This is
a critical observation in the phase of efforts to promote partnerships amongst the
various institutions whereby institutions such as banks can use MFIs or SACCOs to
extend the provision of their services and reach clients they would otherwise not
have reached. This can limit the cost of informal financial channels.

Governor’s Speech at the Breakfast Launch of the FinAccess 2009 Results, June 10, 2009
Ladies and Gentlemen, let me also observe that the information generated now
by the two FinAccess surveys; FinAccess 2006 and FinAccess 2009, also helps
firms in the industry identify where opportunities exist. I am delighted that the
industry now has this useful information base at its disposal. The results of the
FinAccess studies will help the private sector to better understand the dynamics of
the broader Kenyan market and use that understanding to develop new products
and ways to deliver them to customers they haven’t served before.
Finally, I would like to thank all the institutions that contributed in various ways
towards this FinAccess study – notably the Kenya National Bureau of Statistics
(KNBS), the Financial Sector Deepening (FSD-Kenya), Synovate Kenya, the
Research Department of the Central Bank and the entire Financial Access
Partnership. This range of surveys should now be made continuous to provide
data points and information that can help us assess success, deal with challenges
and inform participants as well as investors of the parameters involved, in addition
to understanding the dynamics of this sector.
We have quite some ground to cover to achieve the objective of improving access
to financial services. The majority in this country still lack access to basic financial
services. However, the FinAccess studies provide us with valuable information as
to where we should focus our efforts.
In conclusion, let me also observe that the FinAccess studies have been
championed and driven by a partnership between public and private institutions. I
commend and support such initiatives and hope that this lays the foundation for a
deeper and sustained partnership between the public and private sector in tackling
the challenges and taking advantage of opportunities that arise.
With these few remarks, Ladies and Gentlemen, I welcome you to this
breakfast event.
THANK YOU